The Diverging Fates of Japan’s Tech Titans

Masayoshi Son, president of Japanese mobile operator SoftBank, announces the company’s net profit for the April-September quarter in Tokyo on Oct. 31.

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On Thursday evening, in a crowded hotel ballroom in downtown Tokyo, Masayoshi Son, the mercurial chief executive of telecommunications giant SoftBank Corp. was crowing about strong earnings and declaring his latest big ambition: To become No. 1 in the world in the hot area of smartphone games. About the same time, across town, Panasonic Corp.’s chief executive was saying the tech company’s profits were being boosted – by home-building fixtures and car batteries.

Those contrasting scenes–which played out at earnings news conferences for the July-September quarter–paint an eloquent picture of the diverging fates of Japan’s high-tech giants. The software, games and services served up over a panoply of devices — from smartphones to tablets to laptops – have become increasingly more valuable than the hardware they run on. There’s still money to be made on hardware, just not in consumer electronics.

These days, the hardware-centric companies that formed the core of Japan’s consumer tech industry are struggling with losses and continuing cost cuts, while a handful of software, services and games-focused firms are gaining prominence–seeing stock prices rise (game-maker Gungho Online Entertainment), profits increase (SoftBank) and even buying baseball teams (SoftBank, mobile shopping site DeNa).

Take Sony, which for decades was the undisputed king of consumer-electronics gadgetry, from the hit Walkman music player to Trinitron TVs. Now, it’s those very categories that are pulling Sony down, despite all that CEO Kazuo Hirai — who took over last year vowing to turn the company around — can do to staunch the bleeding.

On Thursday, Sony for the second time in a row cut the full-year sales forecasts for four of its core electronics products: TVs, PCs, digital cameras and video cameras. Of Sony’s eight business segments, the only three that made money during the quarter through September were devices — including chips used in digital cameras — and the non-electronics categories of music and financial services. (To be sure, movies, another non-gadget category, were among the poorest performers of the quarter.)

Panasonic, meanwhile, did unexpectedly well during the past quarter — but not in consumer electronics. Its winning products for the quarter were a motley assortment of things like bathroom equipment, doors, wash basins and lithium-ion car batteries. Meanwhile, TVs continue to lose money in the company’s biggest markets, and Panasonic officially said Thursday it would stop making the plasma panels that had distinguished its TV line for years.

On the other side of the tech spectrum is SoftBank, which has done seemingly everything except make gadgets. Under Mr. Son’s leadership, the company has morphed from a software distributor to an Internet-services company to a telecommunications firm, which just sealed a $22 billion deal for 80% of U.S. mobile carrier Sprint.

It has investments in more than 1,300 companies — most of them “new economy’’ firms like online shopping sites or mobile games creators. One of those firms, China’s Alibaba Group Holding Inc., is expected to list soon in what could be one of the biggest IPOs ever by an Internet company.

Mr. Son is betting heavily on online and wireless services and games, as well as the success of at least some of its investments. On Thursday, he laid out a vision in which smartphone games like “Clash of Clans,” whose Finnish creator SoftBank just proposed to buy, would attract more users to the wireless carriers SoftBank operates in Japan and the U.S.

So far, at least, the cash is flowing in: SoftBank announced a 44% rise in net and operating profit and 121% rise in revenue.